Parties Argue Over Terms In RadioShack Bankruptcy

Radioshack might be in bankruptcy, but like Lehman Brothers the fight over the company is far from over.

Salus Capital Partners, the Harbinger Group unit that loaned money to RadioShack, has filed a lawsuit against other lenders in the electronics retailer’s bankruptcy case that seeks to put limits on credit bidding at an impending bankruptcy auction.

Salus says last-minute financing maneuvers made last year violated agreements among RadioShack’s lenders.

Salus argues that to make things right, senior lenders planning to use debt cancellation as currency at a bankruptcy auction are limited to just $111 million. Any amounts over $111 million must be in cash.

Standard General LP, the major shareholder and lender who will lead the bidding at Monday’s bankruptcy auction, did not reply for a request for comment.

Further developments in RadioShack bankruptcy

A Wall Street Journal article notes that Salus is a second-tier lender, and is owed $250 million. RadioShack’s legal team has said they anticipate enough value to cover what is owed top-ranking lenders, but maybe not enough to pay Salus in full.

The new lawsuit argues that RadioShack’s loan transactions led to unfair payouts, and that more money should be shared among all lenders. Other creditors have also questioned the transactions, and an investigation is underway.

This dispute among senior lenders came about after the retailer announced that its bankruptcy is probably not going to produce sufficient cash to cover all its debts. More than half of the firm’s stores are already closed or are being closed after RadioShack’s February bankruptcy filing. The rest of the stores might be able to sty in business if the bankruptcy auction works out in favor of Standard General or another buyer who wants to maintain the more profitable part of the business.

In the plan made public to date, Standard General and Sprint Corp. say they keep 1,723 RadioShack locations open in a deal where Sprint will operate wireless outlets inside the RadioShack stores. WSJ sources sources say the amount of the offer will be based on a final inventory count in the stores being acquired.

Standard General has not how much it intends to include as a credit bid in its offer. The bid will in essence be a deal to cancel some of the debt RadioShack owes it. Creditors believe the upcoming auction should raise a relatively large amount of cash.